Silvergate Bank Faces Regulatory Deadline – The U.S. Federal Reserve Board of Governors has recently issued a press release stating that Silvergate Bank has been instructed to present a plan within the next ten days that outlines how it will liquidate itself and orderly wind down its operations. This directive from the central bank follows Silvergate’s voluntary declaration of liquidation 86 days ago on March 8, as well as the subsequent collapse of three major banks.
Approximately three months ago, Silvergate Bank publicly announced its intention to voluntarily liquidate its assets and cease its operations. Prior to this announcement, the bank faced financial difficulties, leading to a significant decline in the value of its shares. Citing “recent industry and regulatory developments” as the reason for closing, Silvergate assured that their liquidation strategy would “include full repayment of all deposits.”
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After Silvergate Bank’s announcement, the U.S. banking industry experienced a significant decline, leading to the failure of Silicon Valley Bank (SVB), which became the second-largest bank failure in U.S. history. This downward trend continued with the failures of Signature Bank and First Republic Bank, making them the third and fourth largest collapses in American banking history. Unfortunately, amidst these crises, Silvergate’s deliberate liquidation news went unnoticed.
On May 23, both the Federal Reserve Board of Governors and the California Department of Financial Protection and Innovation instructed Silvergate to develop a liquidation strategy within ten days following the order. The central bank’s directive mandates that “Upon approval by the supervisors, the company and the bank, as applicable, must adopt the self-liquidation plan within 10 days.”
The statement further emphasizes that once adopted, they should “promptly execute the self-liquidation plan and fully comply with it.” Furthermore, the Fed’s order elaborates on the reasons for Silvergate’s downfall, highlighting “various deficiencies” identified by regulators. The report also reveals Silvergate’s association with the now-defunct cryptocurrency exchange FTX and its financially troubled trading arm, Alameda Research.
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As stated, “Beginning in the fourth quarter of 2022, Silvergate Bank experienced significant declines in deposits by its crypto-asset-related customers, triggered in part by the collapse of the crypto-asset exchange FTX Trading Ltd. and its affiliated proprietary trading firm Alameda Research LLC, which has resulted in funding and liquidity stress on the bank and a decline in activities that were key sources of revenue.”
